Cloudsourcing - do you understand the legal complexities of next-generation outsourcing?

As cloud computing matures, its use in IT provisioning is going to rapidly increase. Consequently, we can expect to see substantial changes to many aspects of traditional IT outsourcing.

Jenny Hotchin, technology lawyer and market specia
January 6, 2015

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For the first time in 25 years, following the adoption of cloud computing, next-generation IT outsourcing models are developing (cloudsourcing).

IT provisioning and the associated decisions around outsourcing have dominated the discussions of IT decision makers since the first landmark outsourcing deal between Kodak and IBM. Since this deal in 1989, there have been multiple shifts in focus (selective v total; onshore v offshore), however, the traditional IT outsourcing model, has remained broadly unchallenged.

Cloudsourcing is similar to traditional outsourcing, in that an organisation employs a third party to provide certain infrastructure, platforms, applications and the associated processes and services. However, the rise of cloud computing means that organisations can now procure, implement and integrate infrastructure, platform and application requirements from cloud providers on a utility basis. As cloud computing matures, its use in IT provisioning is going to rapidly increase. Consequently, we can expect to see substantial changes to many aspects of traditional IT outsourcing.

Different levels of cloud provider

Firstly, we can expect to see the continued development of different 'levels' or 'types' of cloud provider (outside the traditional SaaS, PaaS and IaaS categories).

Business function providers will supply customers with business functions, for example payroll or HR (department in a box). The latter is likely to include a number of different cloud products from different providers boxed together.

Cloud integrators, the category which is most akin to traditional IT outsourcing, will provide integration of different cloud services, consultancy, value-added solutions, overall cloud estate management and other traditional SIAM type offerings (often employing (or managing) utility providers and business function providers within the scope of such provision).

The complex array of cloud services available, and the emergence of multicloud (or intercloud), will mean it is not simply a do-it-yourself job for IT departments. Cloud integrators will offer the technical expertise, market knowledge and experience to implement and integrate IT functions in a complex cloud environment.

The rapid change of cloud services will mean IT departments will need to know, not just what is available now but, what may be available in six months and how that will impact on other services procured from different providers. Cloud integrators will be providing this imperative cutting-edge know-how.

Don't get locked into undesirable contracts

We can also expect to see changes in procurement, contract and governance processes. Try-before-you-buy options will be readily available as providers fight to get customers using services as soon as possible. The buying process itself is likely to be simplified. Contracts will be focused and SLAs streamlined. The contracted term will be reduced. Change provisions will be adapted to allow for quick alterations and instant addition and removal of services.

For cloud integration services, contractual commitments will become business outcome based, focusing on the motivation for outsourcing that particular function. This won’t be centred on cost but will focus on drivers such as improved relationship with customers, staff and partners; the ability to gain data insights; and creating a more flexible workforce.

Customers will not be locked into contracts with incumbents for significant periods of time. This will not only be as a result of changes in deal structures (reduced contract term and utility pricing) but also changes in technology (increased use of OpenStack and containerised solutions).

Consequently, providers will be keen to be awarded the role of ‘trusted partner’ (especially so for cloud integrators for whom being agnostic will also be important). Savvy suppliers will be creative in ways to support and promote the increased focus on business outcomes and delivery of customer specific innovation.

Competitive pricing will remain critical (although the cheapest option will not automatically prevail) and providers will be pushed to implement simplified transactional pricing models (especially for utility and business function providers).

On contract renewal, services will be benchmarked (and not only against technical equivalent services but solutions which may be radically different but deliver the same business outcome). Capital investments will be rare.

As cloud computing develops it will become increasingly apparent that traditional IT outsourcing is not equipped to provide the agility and innovation required by modern day IT environments. As contract terms expire and IT provisioning is re-procured we will start to see a shift in approach. Consequently, it is vitally important that those involved in IT purchases (whether or not within the IT department and whether or not cloud) understand the changing landscape and avoid getting locked-in to antiquated procurement, contract and delivery models.

Jenny Hotchin (pictured) is a technology lawyer and market specialist at law firm Ashfords. She can be contacted at [email protected]